Job gains seen topping 200,000 in February

Pace of hiring good but not great; unemployment likely flat at 8.3%

WASHINGTON (MarketWatch) — The U.S. labor market appears to be picking up speed, but the pace of job growth is neither turtle nor hare.

In the past three months, the economy has gained an average of 201,000 jobs, marking the second-best stretch of employment growth since the recession ended in mid-2009. Similar growth is expected when the government issues its February jobs report on Friday.

Economists surveyed by MarketWatch project the U.S. added 213,000 last month. The economy gained a preliminary 243,000 jobs in January and 203,000 in December, though both of those numbers will be revised.

The latest burst of job growth has generated hope that the U.S. is finally turning the corner after several years of sluggish performance. Yet most economists are still preaching caution.

The U.S. is expected to grow at a modest 2% range in the first half of 2012, for example, and few see a big surge in hiring over the next few months. Gradual and steady improvement is the most likely path forward.

“Our view is that we will continue to see a grudging improvement in the labor market,” said Joshua Shapiro, chief U.S. economist of MFR Inc. “You won’t see it bursting out.”

Still, monthly job growth in the 200,000 range is more than welcome. That’s enough to absorb the natural increase in the labor force — roughly 125,000 a month — and slowly whittle down unemployment. The jobless rate has fallen to 8.3% from 9.1% last summer.

Some of the decline stems from workers dropping out of the labor force because they’ve become too discouraged in their job search. Yet layoffs have also tapered off and companies are gradually adding more workers.

These trends are evident in other data such as the weekly jobless claims report, an indicator of whether layoffs are rising or falling. The number of people filing new applications for unemployment benefits has tumbled from as high as 478,000 last April to the current range of 360,000. Read story on jobless claims.

“The combination of lower initial claims and lower continuing claims points to fewer layoffs and improving re-employment prospects for those who have lost a job,” senior economist Ellen Zentner of Nomura Securities wrote in note.

What’s less likely to happen is a hiring boom, an occasional feature in prior rebounds. In the 1980s and 1990s, for instance, the U.S. sometimes posted monthly job gains that topped 400,000 in the early stages of a full-blown recovery. Net hiring even topped 500,000 in September 1997.

Economists aren’t entirely sure why, but huge monthly employment gains like that have disappeared. Hiring in the U.S. hasn’t topped 400,000 in any month since 1999, excluding two instances in 2000 and 2010 when the government hired thousands of temporary Census workers.

In the aftermath of the deep 2007-2009 recession, meanwhile, companies still seem cautious about hiring even though executives are more upbeat. Analysts say they are under intense pressure in a globalized economy to limit spending and keep profit margins from shrinking.

“Companies are making smarter decisions about hiring and allocating resources on a market-to-market basis,” said Brian Kropp, managing director at the Corporate Executive Board, an advisory firm. “The belief is that the hiring that does occur will be incremental.”

Executives also want to avoid a return to the bloated workforces of the past. Many companies found they did not need as many workers as they had, and they want to avoid another painful round of downsizing if the economy falters again.

Rising labor costs, mainly benefits, are another obstacle. “They have to keep costs under control,” Shapiro said. “It costs a lot money to hire somebody.” See story on wage pressure.

As a result, companies won’t add employees unless they are sure the new position will add to the bottom line.

“I expect hiring in the 200,000 to 300,000 range for the next several months, but we are not going to see numbers in the 400,000 to 500,000 range,” Kropp said.

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